Electric Vehicle Sector Faces Turbulence Amidst Uncertainty
The global electric vehicle (EV) sector is bracing for a tumultuous year, with major uncertainties hanging over its future. LG Energy Solution Ltd., a leading battery maker, has announced significant cuts to its spending this year, despite expecting a rebound in sales.
Cuts to Capital Expenditure
The supplier to top automakers, including General Motors Co., Tesla Inc., and Volkswagen AG, will reduce its capital expenditure by 20% to 30%. This move comes after the company reported a surprise operating loss of 225.5 billion won ($157 million) for the three months ended December 31.
New Products and Assembly Lines
Despite the challenges, LG Energy expects to see sales increase by 5% to 10% this year, driven by the start-up of new assembly lines at North American plants jointly run with Honda Motor Co. and Stellantis NV. The company is also set to launch new products, including a next-generation 46-millimeter cylindrical battery.
Uncertainty in the US
The future of energy policy in the US remains a major uncertainty for LG. The company currently receives tax credits under the Inflation Reduction Act, which aims to reduce US dependence on China in the EV supply chain. However, President Donald Trump has ordered the elimination of subsidies and policies that favor EVs, casting a shadow over the industry.
Focus on Investment Efficiency
In the short term, LG will focus on investment efficiency, including cutting capital expenditure and focusing on existing plants rather than building new ones. The company’s Chief Financial Officer, Lee Chang-sil, said that automakers appear to be taking a “conservative approach” due to remarks from the new Trump administration around policy changes.
Global Push to Reduce Reliance on China
LG may benefit from a global push to reduce reliance on China for critical technologies like batteries. Contemporary Amperex Technology Co. Ltd., the world’s biggest EV battery maker, was blacklisted by the US Defense Department earlier this month. Moves in Canada and the European Union indicate tariffs may be enacted, which are likely to target China.
Lithium-Iron-Phosphate Battery Plant
LG plans to start production at its lithium-iron-phosphate battery plant in Arizona in the first half of this year, earlier than initially targeted. The cells will be provided for energy storage systems, with strong demand in North America.
Earnings Outlook
The company’s earnings are likely to hit a bottom in the first quarter, and it’s unlikely sales will rise from the fourth quarter. However, LG estimates it may receive tax credits under the IRA for about 50 gigawatt-hours, and its customers in North America are expected to replenish their inventory in the second quarter, boosting battery sales.
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